MC Computer Systems Worksheet

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1) Technoid Inc. sells computer systems. Technoid leases computers to Lone Star Company on
January 1, 2021. The manufacturing cost of the computers was $12 million.
This noncancelable lease had the following terms:
Lease payments: ????????? semiannually; first payment at January 1, 2021
; remaining payments at June 30 and December 31 each year through June 30, 2025.
Lease term: five years (10 semiannual payments).
residual value $500,000; And the lessee guaranteed a residual value of $600,000
Economic life of equipment: 6 years.
Implicit interest rate and lessee’s incremental borrowing rate: 5% semiannually.
Fair value of the computers at January 1, 2021: $20 million.
a) Calculate the lease payment? Show all calculations
b) Prepare the journal entries by lessee on the date of lease inception
2) On January 1, 2021, Burrito Bills leased restaurant equipment from Oval corporation under a
nine-year lease agreement. the lease agreement specifies annual payments of $75,000
beginning January 1, 2021. the beginning of the lease, and at each December 31 the after
through 2028. the equipment was acquired recently by at a cost $ 540,000 (its fair value) and
was expected to have a useful life of 13 years with no salvage value at the end of its life.
(Because the lease is only 9 years, the asset does have an expected residual value at the end of
the lease term of $ 150,000). Oval seeks an 10% return on its lease investments. By this
arrangement. the lease is deemed to be an operating lease.
a) What will be the effect of the lease earnings for the first year? Show the separate
components as well as the total amount (ignore taxes)
b) What journal entries will the lessee record during 2021 relating to this lease?
3) Technoid Inc. sells computer systems. Technoid leases computers to Lone Star Company on
January 1, 2021. The manufacturing cost of the computers was $12 million.
This noncancelable lease had the following terms:
Lease payments: ????????? semiannually; first payment at January 1, 2021
; remaining payments at June 30 and December 31 each year through June 30, 2025.
Lease term: five years (10 semiannual payments).
No residual value; And no purchase option
Economic life of equipment: 5 years.
Implicit interest rate and lessee’s incremental borrowing rate: 5% semiannually.
Fair value of the computers at January 1, 2021: $20 million.
a)
b)
c)
d)
e)
What type of lease is this to the Lessee
What type of lease is this to the Lessor
What is the semiannual lease payments
Make the Journal Entries by the Lessee on 1/1 and 6/30/2021
Make the Journal Entries by the Lessor on 1/1 and 6/30/2021
4) On March 1, 2020, the XYZ Company acquired 40% of the voting stock of KLM Company for 6
million. The net worth of KLM book value is 10 million. The fair market value of the KLM assets
and liabilities are equal except for a building with book value of 3 million has a fair value of 5
million.
KLM reported net income of 2 million and made dividend distributions of 1 million during the year
ending 12/31/2020
Assuming XYZ is using the EQUITY METHOD for this investment
a) Was there any good will in this transaction? How much?
b) Make the journal entries to reflect the above transactions by XYZ company during 2020
c) Assume XYZ uses straight line depreciation and 10 years economic life. Show the
general ledger of “Investment” account and ending balance by XYZ company on
12/31/2020

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